Generic drug prices increase when market competition decreases

Prices for some generic drugs have increased in recent years, adversely affecting patients who rely on them. One review found that the price of digoxin (a commonly prescribed heart medication) increased by 2,800 percent in a single year. Many factors have been linked to these price increases, including shortages in the manufacturing supply chain (leading to reduced production) and a reduction in the number of manufacturers of a drug (resulting in insufficient competition). Although increases in generic drug prices are thought to be the result of insufficient competition, no study has examined this relationship.

Investigators studied prescription drug claims from commercial health plans between 2008 and 2013 to determine the association between market competition levels and changes in generic drug prices. Based on 1.08 billion prescription claims, a cohort of 1,120 generic drugs was identified. The drugs were categorized as having high, medium, or low competition levels. After controlling for other factors, a generic drug in the highest marketing competition group was expected to see a decrease of 32 percent in price over the study period, while a generic drug in the lowest market competition was expected to see a price increase of 47 percent over the same period. In addition, researchers found low market competition levels had a more pronounced correlation with drug prices in lower-priced generic drugs compared with their higher-priced counterparts.

The authors suggest that understanding the connection between competition and price may be helpful in identifying older prescription drugs at higher risk for price change in the future.